Buffett rule fails Senate vote in tax fight

Senate Republicans on Monday blocked President Barack Obama’s “Buffett Rule” legislation, which would have put a 30-percent minimum tax on millionaires, in a debate that is likely to resonate through the November general election.

Democrats, as expected, failed to garner the 60 votes needed in the 100-member Senate to move to a full debate and vote on the bill aimed at getting more tax revenues out of the wealthy.

Obama and congressional Republicans are squaring off this week over the tax hikes for millionaires and a Republican plan to give new tax cuts for businesses.

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“Tonight, Senate Republicans voted to block the Buffett Rule, choosing once again to protect tax breaks for the wealthiest few Americans at the expense of the middle class,” Obama said in a statement.

Though scant changes to tax policy are expected ahead of the November 6 election, the skirmishes are giving voters a preview of debates they will hear over the next seven months.

Obama and his fellow Democrats argue that raising taxes on the rich will help reduce deficits and bring more fairness to the tax code. Republicans are pushing a much different narrative of tax cuts – even if they add to deficits – as a way of creating jobs.

As Americans scurried to file tax returns by Tuesday, the Senate debated the Buffett Rule, which would require households earning more than $1 million to pay at least a 30-percent tax rate.

Central to Obama’s “tax fairness” re-election campaign theme, the rule is named after billionaire Warren Buffett, who supports it and famously complains that he pays a lower effective tax rate than his secretary. Republicans argued that raising taxes would hurt the fragile economy.

A series of pivotal decisions on tax policy are looming at the year-end, when lower tax rates for all individuals – enacted under former President George W. Bush – are set to expire. These include estate, capital gains and dividend tax rates.

Economists worry that partisan wrangling after the presidential and congressional elections could stall action on those decisions and several other measures, hobbling the economic recovery.

“Politicians’ time would be better spent working on an overhaul of the tax system that could actually pass rather than reforms that are likely to go nowhere,” said Maya MacGuineas, president of the nonpartisan Committee for a Responsible Budget.

CLASS WARFARE?

Republicans say the Buffett measure will do nothing to solve the larger problem of deficits and unemployment.

“We have a president that seems more interested in pitting people against each other than he is in doing anything,” said Senate Republican Leader Mitch McConnell.

He was hitting on a Republican theme that raising taxes on the rich was tantamount to class warfare.

On Thursday Republicans – in firm control the House of Representatives – are expected to debate and likely approve a bill to give a one-year, 20-percent tax deduction on business income to owners of businesses with fewer than 500 employees.

Republicans are portraying that tax cut as one for “small businesses,” a group they say the Buffett Rule will harm.

Democrats say the legislation will add to already huge budget deficits, since Republicans do not include any measures to offset the $46 billion revenue loss. And they cite studies showing that the tax cut will mainly go to those with incomes over $200,000 a year.

One comment

It’s fascinating that the concept of “cheaper by the dozen” doesn’t apply to income taxes paid to our ever-growing Federal government.

Buy just about anything in quantity or bulk, and you save per item. That’s the concept behind Costco, Sam’s Club and others. When it comes to taxes though, the more you make the higher the rate you pay. That’s why there are so many deductions in the code to offset it.

A person making $30,000 a year at 10% tax would pay $3,000. The person making $300,000 per year at 10% would pay $30,000 in taxes – 10 times more tax. Of course, their rate is actually higher than 10%. The person making $3,000,000 in this oversimplified example would pay $300,000; 100 times the person making $30,000! So where’s the discount??? There is none in the income tax. The higher income person is likely paying at the 35% rate or 39% if the “Bush tax cuts” expire. So, they’re already paying their fair share. Plus, deductions phase out the more income you have.

Republicans fail to articulate how small businesses pay at the regular income tax rate: many are S-Corps, Partnerships or LLCs. For those businesses, any profit is reported on K-1s as income to be included in the personal returns of the owners on Schedule E. That income then comes right to the front of the 1040 on line 17. There it’s taxed at their regular income tax rate.

True, qualified dividends – the source of income for many of the wealthy – are taxed at 15% right now. But, that was income to C Corporations that paid taxes at the corporate rate on those earnings. They distribute the money to shareholders and get a deduction for it. Then it’s taxed on the recipients’ individual returns a second time.

Bottom line: the tax code is a bloated mess. Our Government turns out 80,000 new pages of regulations in the Federal Register every year affecting businesses. Don’t we have enough already?

I don’t want to hear about rich people paying their fair share. They already do. Instead of trying to buy votes by blaming the rich, let’s aspire to earn what they earned. That is the true American Dream: do we fault Bill Gates or Steve Jobs for their incredible success? How many people did they employ and empower. We should be encouraging people to achieve more, not making them feel it’s hopeless.